Expenses Earnings Tax Question - Imagine earningn £10,000 a month

[hemphandle]

Trying to keep the numbers simple...

(AM I RIGHT IN THINKING)O0o....

If I earn £10,000 in a month:

I invoice £12,000 as VAT goes on top

£2,000 goes in VAT Account (3) and on to HMRC every Quarter
£2,000 goes in Corporation Tax Account (2) and on to HMRC nine months after my year end.

Leaving in £8,000 in Account 1.

I stay in a hotel costing £1,000 for the month, that is £800 Hotel, £200 VAT

After each three month period I pay my VAT bill but would expect to rebate £200 x 3 = £600 from VAT

At the end the of the year for each month I lived/been paid I should be able to claim back £800, and therefore £9,600 for the year as it is expensed? So I have a tax bill which would be £24,000 but is reduced by £9.600 of items which can be written off... Total Corporation Tax £14,400

OR

Is it the fact that I have earned £120,000 for the year and instead of having to pay 20% Corporation tax on £120,000, £9,600 is written off to leave a taxable income of £110,400 of which 20% Corporation Tax to the amount of £20,080 is due.

Thanks for your help as your answers obviously shape the money I put aside - and whether I drive or stay in a hotel.

[fidot]

The latter, although your company's CT bill will also be reduced by any salary, accountancy fees etc.

For simplicity sake, forget VAT - it's never your company's money.

This leaves your example as incomings/month = 10000, outgoings/month = 800, profit/month = 9200 => profit for year = 110400

What does your accountant say?

[TheCyclingProgrammer]

Expenses do not reduce your corporation tax bill, they reduce the amount of taxable profit. If your turnover for the year is £120,000 and you have no expenses, then your CT bill would be £24k. Each £1 of tax deductible expenditure would reduce your taxable profit by £1 so £9600 in employee accommodation expenses would reduce your CT bill by £1920, leaving with you with CT of £22,080 (not £20,080).

So the second one. But if you're struggling with very basic accounting/bookkeeping principles like this you really need to get yourself an accountant if you haven't already.

As above, if you're on the standard VAT scheme then its easier to deal with figures net of VAT.

[hemphandle]

The latter, although your company's CT bill will also be reduced by any salary, accountancy fees etc.

For simplicity sake, forget VAT - it's never your company's money.

This leaves your example as incomings/month = 10000, outgoings/month = 800, profit/month = 9200 => profit for year = 110400

What does your accountant say?

Mailed him the same message - but I am working away from home... when he posts back to me I will share!

Thanks for the responses.

[hemphandle]

Thanks

Cheers - I am new. I do have an accountant, but am working away from home/him!
For the moment I am putting 20% away each month and am looking to se what I get back at the end of the year - or until I know for sure it can be but back into the main account.

Thanks all!

[Andrew@Wisteria]

Cheers - I am new. I do have an accountant, but am working away from home/him!
For the moment I am putting 20% away each month and am looking to se what I get back at the end of the year - or until I know for sure it can be but back into the main account.

Thanks all!

For a minute I was worried that he didn't have email!

Has your accountant discussed with you the VAT flat rate scheme? Most contractors save £££s by being in the scheme.

If you really want your finger on the pulse for your finances, consider investing in something like freeagent, and your accountant can use this to advise you on what you can draw from the company.

[Michael at BI Accountancy]

For a minute I was worried that he didn't have email!